Answer:
Cost of capital is the overall rate of return expected by investors while the discount rate is the minimum rate of return used for appraising a project in order to obtain the net present value.
Explanation:
Cost of capital is calculated as cost of equity multiplied by the proportion of equity in the capital structure plus cost of debt multiplied by the proportion of debt in the capital structure plus cost of preferred stock multiplied by the proportion of preferred stock in the capital structure.
Discount rate is the rate used for determining the attractiveness of a project. This rate is used for determining the net present value of a project.
Answer:
Logical scenarios
Explanation:
When there has to be a deal of merger, then their is evaluation of the value of entity to be merged. At times the merger takes place between different companies, where they both loose their respective identities, and form a new company joining both.
In that case, evaluation is done, by discounting the value of expected cash flows to be earned.
It is possible most of the times, but in logical scenarios, this is not feasible, as there are many factors changing with the practical implementation of merger.
As the tax rate of identity might change, the expected sales, might increase or decrease. The managerial payments might fluctuate than the expected change. Also, the expenses of running the company might also change.
Answer:
A. D1 = 1.50*1.06 = 1.59
D2 = 1.59*1.06 = 1.69
D3 = 1.69*1.06 = 1.79
B. PV of D1=(1.50*1.06)/1.13^1=1.41
PV of D2=(1.50*1.06^2)/1.13^2=1.32
PV of D3=(1.50*1.06^3)/1.13^3=1.24
PV of all dividend = (1.50*1.06)/1.13^1 + (1.5*1.06^2)/1.13^2 + (1.5*1.06^3)/1.13^3
PV of all dividend = 1.59/1.13 + 1.6854/1.2769 + 1.786524/1.442897
PV of all dividend = 1.407079646 + 1.319915 + 1.238150748
PV of all dividend = 3.965145814288893
PV of all dividend = 3.97
C. PV = 27.05/(1+13%)^3
PV = 27.05/(1.13)^3
PV = 27.05/1.442897
PV = 18.74701
PV = 18.75
D. The most you should pay for it
:
= (1.50*1.06)/1.13^1+(1.5*1.06^2)/1.13^2+(1.5*1.06^3)/1.13^3+27.05/1.13^3
=22.71
E. Value = (1.50*1.06)/(13%-6%)
Value = 1.59 / 7%
Value = 1.59 / 0.07
Value = 22.714286
Value =22.71
F. No, the value is not dependent on the holding period, you can see from above that the value of infinite time period estimated in E equals to the value calculated when there was 3 years holding period.
Answer:
The owner's equity is $900
Explanation:
Because an asset takes money from your pocket and liability puts money in your pocket.
